This record is a partial extract of the original cable. The full text of the original cable is not available.

141533Z Dec 05

UNCLAS SECTION 01 OF 02 ANKARA 007335 
 
SIPDIS 
 
TREASURY FOR CPLANTIER 
USDOC FOR 4212/ITA/MAC/CPD/CRUSNAK 
FCC FOR ATHOMAS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECPS EINV BEXP TU
SUBJECT:  VODAFONE WINS TURKISH MOBILE OPERATOR TELSIM 
 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
This cable was coordinated with Congen Istanbul. 
 
¶1. (SBU) Summary: In another demonstration of Turkey's 
growing attractiveness to foreign investors and a welcome 
injection of competition into the mobile phone market, 
British giant Vodafone won the competition for Turkey's 
second largest GSM operator Telsim with a $4.55 billion 
bid.  The sale also closed the books on the longstanding 
dispute between Telsim and Motorola and Nokia, which had 
been defrauded by Telsim's former owners to the tune of 
$2.8 billion.  The sale to a world class operator should 
improve standards in Turkey's underdeveloped telecom 
sector, benefiting Turkish users and creating 
opportunities for foreign and domestic investors.  End 
Summary. 
 
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Telsim Auction: GOT and Vodafone Get What They Want 
--------------------------------------------- ------ 
 
¶2. (SBU) In a televised December 13 auction conducted by 
the Savings and Deposit Insurance Fund (SDIF), Vodafone's 
$4.55 billion bid beat out Kuwaiti MTC Telecom to take 
100% control of Telsim, Turkey's second largest mobile 
provider.  The two other bidders, Egypt's Orascom and 
Dubai's Etisalat, withdrew from the fiercely competitive 
action early on.  Telsim was seized by the SDIF in 
February 2004 from its former owners, the notorious Uzan 
family, following discovery of a massive fraud at the 
family's Imar Bank.  Telsim and the Uzans had previously 
been sued by Motorola and Nokia for a fraud involving non- 
payment of $2.8 billion the companies had lent to Telsim 
in the form of cash and equipment. 
 
¶3. (SBU) Per its prior settlement agreement with the two 
companies, SDIF will pay Motorola 20 percent of the sale 
proceeds in excess of USD 2.5 billion, on top of an 
earlier cash payment of $500 million.  Similarly, Nokia 
will receive 7.5 percent of the excess.  Thus, the two 
companies will receive a total of $1.25 billion on their 
$2.8 billion claim (not including interest), a far better 
result than appeared likely several years ago.  SDIF will 
bear the risk of any subsequent legal challenge by the 
Uzans.  As part of the deal, the companies agreed to drop 
the legal proceedings, including a case brought to the 
World Bank's ICSID dispute resolution body, that have 
long soured Turkey's investment climate. 
 
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Welcome Competition in Telecom Sector 
------------------------------------- 
 
¶4.  (SBU)  After the auction, Vodafone Group Director for 
Mergers and Acquisitions Andre Sokol said Vodafone plans 
to rename the company and invest an additional $1.2 
billion over the next three years to introduce new relay 
stations, upgrade the existing network and elevate Telsim 
to Vodafone standards.  With a mobile penetration rate of 
only 53%, there is considerable room for improved service 
in Turkey.  Istanbul analysts also welcomed the sale for 
the additional competition Vodafone will provide to the 
dominant mobile company Turkcell, whose share price 
declined by 6.4% on the news.  Transport and Telecom 
Minister Binali Yildirim said the positive tide in the 
telecommunications sector launched by Turk Telekom's 
recent partial privatization continued.  Responding to 
nationalist fears of foreign domination of the sector, 
Yildirim said mechanisms to control the functioning of 
all companies in Turkey, domestic and foreign, were in 
place. 
 
¶5.  (SBU)  Formal transfer of Telsim to Vodafone will 
take place after the SDIF Board, the Council of State 
(Danistay), the Telecommunications Authority and the 
Competition Authority approve the sale.  Telsim CEO 
Ferruh Tunc said he expected the transfer to be finalized 
before March 2006. 
 
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Comment 
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¶6.  (SBU)  In addition to resolving the longstanding 
dispute with Motorola and Nokia, lower-cost and higher 
quality telecom services brought about by more 
competition should help create other new investment 
opportunities in Turkey, including for U.S. companies. 
Still, some analysts, like EFG Securities Osman 
Memisoglu, raised raised concerns with CONGEN that 
investors may have overpaid for Telsim, as some also 
think they did in the recent privatizations of refinery 
company Tupras and Ergeli Steel.  The sale proceeds will, 
however, provide a boost to the SDIF's efforts to recover 
the huge costs of cleaning up Turkey's banking sector 
following the 2001 crisis.  From a balance of payments 
perspective, the net inflow of $4.2 billion (including 
the $400 million VAT Vodafone will pay on the purchase) 
will provide a welcome stream of long-term stable 
financing for the current account deficit. 
Wilson